Hackers saw an opportunity for profit the moment cryptocurrencies became popular. In 2017, crypto exchanges reported losing over $260 million USD due to security hacks and heists. The first half of 2018 has not proven to be any better. It has been reported that triple the amount stolen in 2017 has already been stolen in 2018. There will always be small scale breaches that can be prepared for, but there have been multiple heists and these massive, orchestrated, planned attacks have led to millions of dollars in losses, and they keep coming.
January 2018, hackers were able to detect a loophole in the Coincheck exchange that allowed them to steal almost all of the NEM within the exchange. (The exchange was worth $530 million at the time.). NEM was the only cryptocurrency that was affected and the other coins remained secure. The NEM Foundation blamed the heist entirely on Coincheck instead of the security of the XEM coin. They have suggested that Coincheck’s “relaxed security measures” caused the hack and as a result, refused to carry out a hard fork to recover the funds. This damaged both the reputations of NEM and Coincheck and inserted mistrust in people’s mind about crypto exchanges.
Between 2013 and 2014, Mt. Gox, a Tokyo based crypto exchange, was responsible for over 70% of the world’s Bitcoin transactions. In February 2014, a hacker stole over 850,000 Bitcoins which worked out to be around 6% of all Bitcoins that existed at the time. As a result, Mt. Gox filed for bankruptcy and the price of Bitcoin dropped significantly for three months. Only 200,000 Bitcoins were able to be recovered. Mt. Gox was not unfamiliar with problems as the company was shut down earlier that month because of a glitch that allowed its users to withdraw the same Bitcoin multiple times and the site was in trouble with authorities for operating without the correct money transmission permits. The FBI ended up seizing $5 million in illegal assets from Mt. Gox.
BitFloor was one of the more unknown Bitcoin exchanges, but ended up having one of the largest Bitcoin hacks in history. In 2012, BitFloor was the largest competitor of Mt. Gox. However, that changed when hackers gained access to users’ private keys (stored in an unencrypted state online for a backup). The exchange was forced to shutdown as a result of the hack. The story does not end on a sad note though, the exchange was able to refund users all of their loses.
Many in the crypto-community argue if this was actually a “heist” and not justice. The FBI shut down the Silk Road and seized 173,655 Bitcoins from both the website and the founder Ross Ulbricht in 2014. This means that, at one point, the FBI had the single largest Bitcoin wallet in the world. Many questioned if this was not simply a plan to secure Bitcoins for the government's own gains. However, in January of 2015, the FBI announced that it would get rid of the 30,000 something Bitcoins seized from the Silk Road, and Ulbricht filed a claim for civil forfeiture action stating that he legally owned his 144,000 Bitcoins, despite using them for illegal purposes. Not surprising, this claim was denied.
As with Silk Road sequel, Sheep Marketplace opened in 2013, after the original was shut down by the FBI. The site gained popularity and even had its own subreddit. But, this only made the marketplace more popular to hackers as well. In December of 2014, hackers were able to steal 96,000 Bitcoins while manipulating the users’ bank accounts to falsely reflect no losses. However, people did eventually notice and some reddit users even think they caught the hackers. Unable to gain enough evidence and unable to recover their coins, sometimes justice isn’t always a possibility.
After the FBI shut down the deep web’s famous black market, Silk Road, a blockchain expert created a site that operated and looked almost exactly like the original. Hackers must have known how much money was in the original Silk Road because one hacker was able to single handedly break in and clear out all of the funds within the new Silk Road. The founder of the Silk Road sequel stated that the successful hack was due to the “transaction malleability” bug in Bitcoin that also shut down several exchanges at the same time as the heist. He promised to refund everyone’s money, you know, once he got out of prison.